Roche files $545 mln lawsuit vs Credit Suisse

By IBT Staff Reporter10/20/09 AT 11:40 AM

ZURICH - Swiss drugmaker Roche Holding has filed a lawsuit against Credit Suisse in the U.S. after two former directors at the bank, later charged with fraud, sold the company $545 million in risky securities.

The lawsuit is one of several U.S. cases centring on the sale of risky securities backed by collateralised debt obligations (CDOs) or Auction Rate Securities (ARS), whose value collapsed during the credit crisis.

...during the period from Nov. 2006 through July 2007 Credit Suisse fraudulently invested over $545 million of Roche's cash in CDOs and other ARS collateralized by subprime mortgages, credit-linked notes and other risky collateral, rather than in federally guaranteed student loan securities as represented, said the Roche complaint filed in a New York court.

Roche spokesman Alexander Klauser confirmed the ongoing litigation, first reported in Swiss newspaper Le Temps, but said the company did not provide details on securities transactions.

A spokesman from Credit Suisse said the bank would defend itself vigorously against the allegations.

The lawsuit named former Credit Suisse brokers Eric Butler Julian Tzolov, who were accused earlier this year of buying securities backed by subprime mortgages and other risky debt in order to earn higher commissions while passing the products on to clients as low-risk securities backed by federally supported student loans.

Butler was convicted in August of fraud for steering corporate clients into risky auction-rate securities, causing nearly $1 billion of losses.

Co-defendant Julian Tzolov, who testified against Butler, pleaded guilty in July to fraud charges and to bail jumping.

In August Assistant U.S. Attorney John Nowak described the activities of the pair as a bait-and-switch scheme.

SIMILAR FILINGS

The Roche complaint is one of several similar filings against global banks currently working their way through the U.S. courts.

In February a U.S. arbitrator ordered Credit Suisse to pay $406 million to STMicroelectronics SRTM.MI to settle claims the bank misled the Franco-Italian producer of microchips into buying auction rate securities.

The Credit Suisse spokesman told Reuters on Tuesday the bank had lodged an appeal against that ruling.

In September a U.S. judge dismissed a class action lawsuit against Citigroup Inc brought by buyers of auction rate securities on the grounds that the plaintiffs could not prove a claim for fraud or market manipulation.

And earlier in October, a U.S. judge allowed German institutional investor HSH Nordbank to proceed with fraud claims against Credit Suisse rival UBS over a soured $500 million investment in a CDO programme managed by UBS.

The case is Roche International LTD vs Credit Suisse Group AG case number 1:2009cv08674 and was filed on Oct. 13 with the U.S. District Court Southern District of New York. (Editing by Will Waterman)